5/16/2008 @ 6:00AM

How Amazon Could Change Publishing

Technology has disrupted every industry. Now, it’s book publishing’s turn.

Archaic beyond belief, it’s an industry that treats its most important asset–the author–badly. Can this go on?

The book market in the United States is worth about $32 billion a year; the rest of the world, an additional $36 billion. Who makes the money? Not the author.

Retailers take almost 50%. The agent takes 15% to 20%. The publisher gets squeezed–it’s cause for huge celebration if they make 20%.

“On a book that costs $24.95, the author gets at most $1 to $1.50,” says Eileen Gittins, chief executive of Blurb, an online print-on-demand publisher of photography books.

Join the discussion: Is book publishing outmoded? Do authors have better alternatives? Is there a white knight who can help? Tell us what you think in the Readers Comments section below.

The first major technology-enabled change in the industry came when digital print-on-demand presses started becoming affordable. Although printing on demand is 30% more expensive than off-set printing, it doesn’t have the minimum run requirements of 500 to 700 copies.

Self-publisher iUniverse, which uses a print-on-demand back-end, gained legitimacy after Amy Fisher, the “Long Island Lolita,” used it to publish her memoir, which hit the New York Times best-seller list. It’s the best-selling book in iUniverse history, selling more than 34,000 copies.

However, for authors looking to gain serious readership, the big question still remains unanswered: How would they market and distribute their books?

Enter
Amazon.com
. Some surveys suggest that online booksellers could become the largest channel for book sales by 2009, and Amazon is certainly the 800-pound gorilla in that market–it’s the largest bookseller in the world.

To understand why, you have to look at the technology that powers Amazons Web site. Yes, Amazon offers the best prices, but what really keeps customers coming back is the outstanding user experience.

It was made possible by Amazon’s acquisition of a small technology company Junglee in 1998. Junglee, which powers Amazon’s now-famous recommendation system, uses a technology called collaborative filtering to figure out what other books people will like. Its a fantastic way to market and merchandise with contextual and personalized offers that can have a direct impact on the promotion of a particular book. (See: “Web 3.0 & Amazon“)

Amazon has years of data on all its loyal customers and it consistently produces great recommendations. We reward Amazon with our wallets.

Amazons ability to market books efficiently makes it wildly attractive as a channel, and the company knows it. Its recent moves shine some light on where its ambitions may lie. In 2005, it acquired the print-on-demand company BookSurge and Mobipocket.com, an e-book software company. In November, it launched the e-book reader Kindle.

Amazon is poised to revolutionize the book printing business through vertical integration. Lets look at the numbers. Assuming that Amazon already pockets 50% of the retail price of a book, it could directly engage with authors and cut out the middlemen: the agent and the publisher. That would free up 30% to 40% of the pie, which can easily be split between Amazon and the author.

Lets say, in the new world, Amazon becomes the retailer, marketer, publisher and agent combined and takes 65% of the revenues, offering 35% to the author–we end up with a much better, fairer world.

Vertical integration is where Amazon is headed. Jeff Bezos is a shrewd business man. I would be very surprised if he hasnt figured out the inefficiencies of the book publishing business and Amazons opportunity.

The company recently announced it would require all print-on-demand publishers to use its BookSurge print-on-demand service for their books sold on Amazon.

Over the next few years, Amazon likely will use its power to build direct relationships with authors and gradually phase out publishers and agents. It will first go after the independent print-on-demand self-publishers and get the best authors from that world. Amazon will then take on the large publishers.

For decades, the publishing industry has taken advantage of authors. Amazon: authors are counting on you to turn the table!

Join the discussion: Is book publishing outmoded? Do authors have better alternatives? Is there a white knight who can help? Tell us what you think in the Readers Comments section below.

Sramana Mitra is a technology entrepreneur and strategy consultant in Silicon Valley. She has founded three companies and writes a business blog, Sramana Mitra on Strategy.She has a master’s degree in electrical engineering and computer science from the Massachusetts Institute of Technology.